Market/Pain Selection for Kalzumeus

I have a bad habit of becoming fascinated by any system which is sufficiently complex and wondering how to do it better. Baseball statistics, for example. I really do not care for baseball. The activity does not interest me, the sport bores me, and aside from a cultural imperitive to root for the Cubbies in my family I’d be completely ignorant about it… but I own a book about Sabermetrics. Forget the game, that stuff is interesting. I collect wee little obsessions like this as the time goes by, and generally write down my ideas in a notebook, and after two pages or so I get bored and nothing new goes in about that subject.

I decided at some point that I was going to actually make a go out of the uISV thing as, eventually, a full-time occupation. I’m not exactly sure when I made that decision — when I rolled out Bingo Card Creator I was definately thinking “Amusing hobby, expected shelf life 6 months or so”. Now I find myself considering potential job offers in the light of “Can I easily transition from this job to full-time self employment in 2-3 years?” Regardless of when exactly that change happened, since then I’ve been adding things to the notebook with an eye towards obvious connection to money. The general idea is that it is far easier to justify someone paying you $250 if you save them $2000 than it is to justify someone paying you $24.95 if you save them $10-15 a few times a year (which is one of the pitches for Bingo Card Creator).

I chanced upon a particular investment opportunity when reading the Motley Fool and was quite taken with it. Not that I had any interest in doing it myself (see: baseball), but it is extraordinarily popular in the United States — millions (!) of people are actively engaged in it, and they are all investors and as such have money to spend. There are many, many niches in this field, and many, many problems faced by these niches. Some niches have Big Problems which get literally millions of dollars applied to them by Companies That Solve Big Problems And Have Capitalizations To Match. However, a couple of the niches have problems but the solutions available are, well, not so great. Many of the solutions involve calculations on paper, elbow grease, and very expensive professionals doing things that could be done by a trained monkey with a slide rule.

I picked one particular niche, where small businesses or individuals are working in this investing field, and picked one particular high-value problem they have. There are companies which will offer to solve this problem already, but which use a far different way than the web application I am developing. In general, their methods scale very well for the user but have prohibitive startup costs and, as a result, they really don’t encourage (or sometimes even accept) business from the smaller fish. This results in most small businesses or individuals not using these services, instead preferring to fix the problem by themselves, and then complaining about it to anyone who will listen on their forums. Ahh, music to my ears. As a plus, there are at least twenty companies who all appear to be making a living doing different variations at different price points of the exact same thing. That spells fragmented market, and as Ian Landsman once commented fragmented markets are the uISV’s best friend.

I am slightly worried about my cost-competitiveness with some of these solutions. With my web application, scaleability is going to be fairly low compared to my competitors, but the fixed cost of entry is going to be comparable or lower. As a result, I think that I can be fairly competitive on price for the niche that I’m targetting, where the cost of entry will overpower the scaling factor. I know I can blow them away on the feature set (at any level) — there is something about replacing paper and slide-rule totting monkeys with computers that suggests a plausible increase in process efficiency.

My other worry, excessive regulation of the niche, turned out to be vastly overstated. I read through all my competitors’ disclosure forms and legal agreements, expecting a 40 page monstrosity of a release about one point in particular. Apparently, everyone treats that point as just an risk of doing business, one that is too minor to even put in their contracts (the one that mentions it disposes of it in a single sentence which begins with the word “Obviously”). This means I will likely be able to sleep at night without the prospect of being dragged into court on a weekly basis, which is a good thing. I also think that I can position my application as having less risk with regards to that point than my competitors do, which can only help my sales pitch.

Marketing is going to be tricky. I don’t have personal experience in the niche and, while I know a few places where they hang out and am putting myself through a crash-course about their business practices and problems, have not yet figured out a totally effective way to address them. On the plus side, my competitors apparently have not heard the phrase SEO yet and the two which are using AdWords are not exactly geniuses with it. Search engine traffic on related keywords may or may not indicate enough interest to sustain me, we’ll see.

Price point: Given that I’m focusing primarily on small fish in the big pond, I’m thinking of breaking with web-app tradition and having exactly one price per month. The idea, similar to e-junkie, is to get people hooked on you quickly and then bill them forever. Most of my competitors require you to do math to figure out how much they will charge you, and I think the simplicity of “We have ONE price for ALL customers and are interested in YOUR business even if our competitors think you’re too small to be bothered with” might be a decent differentiator. We’ll see.

In terms of how many customers I’d need to make a permanent go of this, I could cover my burn rate with about 200 (assuming no growth in Bingo Card Creator) and will replace my next job’s salary well before hitting a thousand. This is in a market, again, numbering in the millions. I’m forecasting minimal churn since the pain involved in moving to one of my competitors (and their high fixed costs) looks pretty prohibitive when compared to the price delta, and I don’t anticipate many folks abandoning me for their old way of doing things. My tentative plan is to take a few years building up the business to where it makes sense to switch, and then going full-time.

How about a little bit more detail? Even though I am absolutely in love with the “try and figure out what niche this mISV is going after” game, it does tend to get old.

I think if you are going to be transparent, then be transparent. If you aren’t, then stop teasing!

Anyway, I do like reading your blog, and look forward to each entry.

And no, I do not have a good idea yet on what I want to do. I am still at the point of writing in my notebook (or just keeping the ideas in my head, where they tend to get lost). Maybe one of these days.

I was considering letting it all hang out early, but a) it would be vaporware at the moment since I have essentially no useable code written and b) I don’t want familiarity to breed contempt. Don’t worry though, I’ll be more transparent after I have something to show.